Iran, China to explore new areas of cooperation despite challenges

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China and Iran are set to expand their relations into areas that were previously blocked due to Western sanctions.

Iran and China will cooperate on modernization and reconfiguration of the Arak nuclear facility in Iran

While Iran is wooing China into buying its oil and gas, China sees in Iran not only a huge market but also a geographical link to the whole of West Asia—and, as such, an opportunity that it can use to ‘out-pivot’ the U.S. in the region.

After the Iran nuclear deal, China turns out to be one of the major beneficiaries. It has pursued opportunities in the Iranian nuclear energy market, increased investment and expanded political influence too.

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This is happening at a time when the West is struggling to normalize its relations with Iran to seek maximum benefit out of the deal.

Although Iran has signed deals worth billions of dollars, U.S-imposed financial sanctions act as a huge barrier and is the cause for European banks’ hesitation to finance the deals.

As friction continues between the U.S. and Iran (Tehran’s religious leadership continues to blame the U.S. for its unwillingness to unfreeze Iranian assets), an expanded alliance between Iran and China seems to be a convenient choice for both.

With China set to become the world’s largest energy consumer by 2030 and Iran ranked fourth in the world with proven oil reserves, Tehran can safely fulfil Beijing’s energy needs that are likely to increase from the current 6 million barrels per day to 13 million by 2035.

Both countries are up for building economic ties worth up to $600 billion that include nuclear energy co-operation between them.

Iran borders the Gulf and Caspian Sea, two important destinations of China’s ‘one belt, one road’ program, and it is a huge market with a lot of potential to develop (Iran has a thriving stock market with a market capitalization of $80 billion and potential for much more given that is still only 30% of GDP.)

If Iran does not participate, the nuclear projects, many believe, may not be able to work efficiently. Hence, China is offering to provide for Iran’s nuclear energy needs.

Iran’s Atomic Energy Commission head, Ali Akbar Salehi, announced in early 2016 that Tehran plans to accept help from China for the establishment of two nuclear power plants. Salehi and the head of China’s Atomic Energy Authority, Xu Dazhe, also decided to cooperate on modernization and reconfiguration of the Arak nuclear facility along with enhanced co-operation in other areas of nuclear research.

However, despite the bright prospects of this co-operation, China is facing challenges which it will have to efficiently deal with.

China is not the only country interested in making investments in Iran. It is competing with Japan, which also eyes crude oil from Iran, and other Middle East countries. Russia has already agreed to build nuclear reactorsin Bushehr as well as aid Iran to develop the Fordo enrichment plant to produce isotopes that are not capable of producing nuclear weapons.

While China is not the only country eyeing to establish strategic and economic relations with Iran, Iran is also not the only country in the region that has attracted investments from China.

China’s ‘One belt, one road’ project cannot succeed if its foreign relations follow a unilateral trajectory. It needs a diversified approach. Given the complex web of relations in the Middle East, the greatest challenge for China is the question of how to balance its relations between Saudi Arabia and Iran.

Saudi Arabia may not be that important for China as Iran is due to its geographical location, but the former is an important market that Chinese products have been dominating for the past few years. For Saudi Arabia, China is important not only as an oil consumer, but also as a potential supplier of nuclear energy.

China, for its own sake, is reinventing itself as a nuclear supplier rather than as a customer and is pursuing opportunities on multiple fronts in the Middle East (Iran and Saudi Arabia) and North Africa (Egypt).

However, despite the many opportunities China is seeking, Iran appears to be a safe choice as Saudi Arabia and the Gulf have traditionally maintained a pro-U.S. position and they continue to rely on that country for their defense and security.

While the challenge for China is to balance itself between Iran and Saudi Arabia, it will continue to maintain some tilt toward Iran, the way it did during the era Iran was under sanctions. But China would not allow the ‘cold war’ between Iran and Saudi Arabia to become an obstacle to good relationship with both countries. From a Chinese national interest perspective, this is a sound and logical policy to follow.

On the other hand, the possibility of Saudi Arabia and Iran reaching a certain level of normalization due to participation in China’s ‘Silk Road’ cannot simply be brushed aside. Within Saudi official circles, China’s economic ventures have found a lot of attraction as a means to diversify and modernize Saudi Arabia’s traditional oil economy.

Salman Rafi Sheikh is a freelance journalist and research analyst of international relations and Pakistan affairs. His area of interest is South and West Asian politics, the foreign policies of major powers, and Pakistani politics. He can be reached at salmansheikh.ss11.sr@gmail.com

Salman Rafi Sheikh is a freelance journalist and research analyst of international relations and Pakistan affairs. His area of interest is South and West Asian politics, the foreign policies of major powers, and Pakistani politics. He can be reached at salmansheikh.ss11.sr@gmail.com